Kiosk Newsbit

Only the ambitious need apply
(Cards International; 08/17/98)

Andrew Tobin, head of Logica's Card Technology Unit, examines the huge 
 opportunity awaiting the organisation which grasps the nettle of global smart 
 cards infrastructure

    THE MOVEMENT to do business electronically across networks is gaining 
 momentum as more and more of the technologies needed are clicking into place.

    While real-world commerce infrastructures have emerged over hundreds of 
 years, the infrastructure for electronic business is needed much more quickly. 
 Those organisations that seize the opportunity to develop and control key 
 points of the e-commerce infrastructure will not only gain power and influence 
 in electronic markets but also build the foundations for a highly profitable 

    Such organisations are becoming known as 'intermediaries' in the new value 
 chains made possible by the rise of electronic business. Potentially one of the 
 largest business opportunities is emerging in the smart cards sector, where 
 there is an urgent need for an organisation that can issue, manage and 
 coordinate smart cards and smart cards transactions.

    If electronic business transactions are to succeed, customers, be they 
 individuals or organisations, need a portable, secure way of:

    identifying themselves within a transaction;

    storing the information needed to participate in known-relationship 
 transactions; and

    accepting new information to enable them to carry out transactions with 
 previously unknown partners.

    Multi-application smart cards, able to download new applications from the 
 Internet or in-store kiosks and to store personal information, provide a low-
 cost and versatile solution. Yet their acceptance is dogged by a number of 
 business problems, most of which are directly related to the ownership of the 
 infrastructure for issuing smart cards, controlling the applications that can 
 be downloaded to them and handling the transactions that result.

    At present, this ownership is fragmented. Banks issue cards, for example, 
 and own the associated cardholder relationship. In recent years, retailers have 
 joined the cards wars, issuing loyalty cards in a bid to put their brand in 
 customers' wallets. As a result, a consumer backlash is setting in against the 
 multiple pieces of plastic people have to carry around, and the fact that the 
 value they receive from such cards is limited.

    Customers don't want to spend, say, #900 ($1,500) to gain enough points to 
 buy something they didn't want in the first place. In an increasingly self-
 service, consumer-power culture, they want added value in terms of quality of 
 service and price, such as convenient access to their transactional information 
 and special offers that are personally relevant.

    Obsession with the issues of branding and customer ownership is blocking the 
 development of a standard, nationwide, and eventually, global infrastructure to 
 support smart cards-based electronic business. Under the current scenario, 
 competitive considerations are holding back multi-application smart cards. It 
 is unlikely that a distributor of such cards, such as Visa, would be happy if 
 they were also loaded with an application from MasterCard. Nor is it possible 
 to dynamically reprint the cards' surfaces with the branding for a new 

    But the problem of cards ownership could be done away with at a stroke if 
 smart cards were issued by an independent organisation. This new intermediary 
 would sell cards to customers who would then load them with the applications of 
 their choice - and the brand-owner's real-estate would merely move from 
 customers' wallets onto their cards.

    Applications would be available online from a central repository 
 administered by the intermediary. A multitude of different retailers, travel 
 companies, service providers and even public administrations, from the NHS and 
 DSS to the local library or sports centre would provide smart cards 
 applications, or buy them off the shelf from the intermediary.

    In a recent survey of 2,000 adults carried out by the UK government's 
 Central IT Unit, 80 percent would be willing to use touch-screen technology to 
 interact with government, an indication that electronic business would be 
 widely accepted by the population at large, provided easy-to-use, convenient 
 infrastructure is in place.

    Instead of having both Sainsbury's and Tesco's loyalty cards in their 
 pockets, cardholders would download each company's loyalty application to sit 
 side by side on their smart cards. Although they would not have their branding 
 on the surface of the cards, the retailers would have at their disposal new, 
 and potentially far more powerful, loyalty opportunities made possible by 
 online links with the independent cards.

    Thus, when a customer accessed each company's application - whether from a 
 PC at work or home, pay-as-you-go Internet kiosk, or in-store intranet facility 
 - he would be offered services that enhanced his shopping experience, such as 
 the ability to check the availability of goods, or to order them online, and be 
 targeted with offers that might change daily, or even hourly, customised to his 
 shopping habits.

    The retailer's brand would also appear on the display of the point-of-sale 
 (POS) terminal when customers used their smart cards to pay in that store. The 
 intelligent POS terminals might even display and print out special offers on 
 the spot, or customers might put their cards through a reader on entering the 
 store and receive customised shopping lists and personal discounts.

    The new intermediary would do more than merely provide an independent source 
 of multi-application smart cards. It might act as a trusted third party, 
 carrying out all the identity checks that will result in a cards identity being 
 trusted in an electronic business transaction. It would be responsible for the 
 security processes involved in replicating information onto new cards when old 
 cards have been lost, and for disabling or deleting specific cards applications 
 when the application owner (such as a bank or retailer) wished to revoke the 
 services it provided to a particular customer.

    In addition, it might provide many other smart cards-related infrastructure 
 services, such as the provision of advanced POS terminals and in-store kiosks 
 that will support smart cards-based transactions, as well as the transaction 
 handling itself.

    Terminals that can use smart cards need to be distributed far more widely to 
 retailers than they are today, and an intermediary which distributed cards and 
 owned the application repository would be in a good position to rent, sell or 
 lease advanced POS terminals, much as Eftpos New Zealand does today.

    Such thin-client POS terminals would hold applets that control interaction 
 with the applications on the card. If a retailer wanted to accept a new type of 
 card, it would download the relevant applet from a central server, which is 
 also likely to be maintained by the smart cards intermediary.

    Smart cards-reading terminals are not confined to fixed locations such as 
 point-of-sale, desk or kiosk - mobile telephones, pagers and personal digital 
 assistants will enable a new generation of mobile, cards-based transactions.

    The intermediary would also provide the first point of contact for 
 cardholders wishing to gain a complete view of the information on their smart 
 cards. For example, they might wish to look at their number of frequent flyer 
 points and check the status of their electricity and telephone accounts at the 
 same time. The intermediary would provide the links through to the sources of 
 the relevant transactions, held within the airline/electricity/telephone 
 company's databases. Alternatively, it would acquire all the smart cards-based 
 transactions directly within its own database and send updates to the 
 retailers' systems at agreed intervals. Such third-party handling of 
 transactions is already commonplace - for example, the Link ATM network in the 

    Organisations such as Link and Eftpos New Zealand demonstrate that there is 
 already a business case for their activities, which can be transposed to the 
 smart cards intermediary's environment.

    There are other precedents for generating revenue from further elements of 
 its business. For example, the intermediary might take a percentage of each 
 card sale, and/or charge per transaction for handling cards transactions. It 
 might charge for the development of applications to go on cards and their 
 maintenance in its application repository, as well as for security services, 
 such as 'hot cards' notification (if cards are lost) and 'hot list' management. 
 It might collect click-through advertising revenue from links to companies on 
 its Web site. It might even provide pay-as-you-go Internet services.

    The new business model of smart cards intermediaries is attractive because 
 it solves most of the problems besetting the market today. It addresses key 
 infrastructure issues such as cards distribution and availability, and 
 compatibility between different cards types and POS terminals. From the 
 suppliers' point of view, it creates new branding and marketing opportunities 
 and relieves them of some of the thorny security issues involved in electronic 
 business such as trusted identity and hot cards management.

    It meets consumer needs by putting choice firmly into customers' pockets and 
 removing the confusion generated by many different organisations claiming to 
 'own' them. It provides cardholders with unparalleled convenience in all 
 aspects of their lives, and not simply in banking and shopping applications.

    Electronic business is rapidly breaking down the barriers between market 
 channels for goods and services, enabling their acquisition from a variety of 
 sources. In the future, cardholders may buy their car tax disk at Halfords when 
 they pop in for the antifreeze, and register a child's birth at Mothercare 
 while they pick up their newborn's nappies. In these cases, secure smart cards 
 give the intermediary the ability to underwrite any security risks involved in 
 the provision of these services.

    It is clear that the intermediary's offerings will have to be well marketed 
 and positioned to attract customers, both for its services and for multi-
 application cards. Convenience for the latter customer segment will only become 
 a reality if the intermediary has a marketing proposition to encourage the 
 participation of retailers, banks, government institutions, telcos and others. 
 It will also need to assure these organisations of strict and applied 
 confidentiality where consumer transactions and applications development are 

    Such a marketing proposition may maximise the economies of scale 
 participating organisations can achieve, which will result in lower costs of 
 doing business, but the potential for new and more flexible brand visibility 
 and for direct target marketing will also prove attractive.

    All that remains is to find the candidate willing to pick up this business 
 opportunity. A company already providing transaction routing and acquisition 
 facilities would be well placed to extend its services into the area of smart 
 cards support. Equally well placed would be a terminal supplier or an Internet 
 service provider.

    Other companies with large public networks, such as telecommunications or 
 utilities providers, will also have a head start. The ambitious and visionary 
 organisation that seizes the day will undoubtedly find itself at the hub of 
 electronic business in the next millennium.

Thanks Kinetic!

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